Korean FTC Issues Fines Over Loot Box Advertising

Monday, April 9, 2018

According to a recent news article, the Korean FTC fined three game games for allegedly not making clear disclosures regarding the odds associated with certain loot boxes. Loot boxes are items that players can win or buy and that give the player a virtual item, but the players does not know which one until they “open” the box. According to the article, some of the games encouraged players to buy loot boxes to collect 16 puzzle pieces, which would award players with special in-game items once completed. This mechanic, known as Kompu Gacha, was once popular in Japan until the Japanese FTC raised concerns there.

The Korean FTC expressed concerns over the way the odds of winning the items were advertised. In at least one of cases, the game company used the phrase “random provision.” The FTC interpreted the phrase as suggesting equal odds of receiving the different items. The issue of loot boxes has received a fair amount of attention lately. We recently prepared a post on “Are Loot Boxes An Illegal Gambling Mechanic?” and an Update to that post. As we also reported, Apple has required disclosure for loot box odds. Recently, Hawaii and Washington State proposed legislation relating to loot boxes.

There are at least three key issues with loot boxes. First, depending on how they are structured, some argue they are illegal gambling. We are not aware of any U.S. court reaching this conclusion. Various other countries are looking into that issue. Second, is the appropriate disclosures that must be made. Third, is that some argue loot boxes are harmful to kids for allegedly driving addictive behavior. There is much debate about these issues.

The ESRB recently helped step up the self-regulatory aspects of these issue. It recently announced that it will soon begin assigning a new “In-Game Purchases” label to physical (e.g., boxed) games. According to the ESRB press release: “The new In-Game Purchases label will be applied to games with in-game offers to purchase digital goods or premiums with real world currency, including but not limited to bonus levels, skins, surprise items (such as item packs, loot boxes, mystery awards), music, virtual coins and other forms of in-game currency, subscriptions, season passes and upgrades (e.g., to disable ads).”

The ESRB also launched ParentalTools.org to help educate parents on how kids spend money playing video games.

Game companies should continue to assess how they structure and advertise their loot box offerings and remain abreast of potential legislation that is being proposed.

Jim Gatto is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office. He is also Co-Team Leader of the firm's Digital Media Industry and Social Media and Games Industry Teams, Blockchain Technology and Digital Currency team, and Team Leader of the firm's Open Source Team.

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Mr. Gatto leverages his unique combination of nearly 30 years of IP experience, business insights and attention to technology trends to help companies develop IP and other legal...

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